November 22, 1995
CLA-2 RR:TC:SM 559284 DECCATEGORY:CLASSIFICATIONTARIFF NO.:9802.00.80
Mr. Steven T. Bernstein
H.Z. Bernstein Company, Incorporated
2975 Kennedy Boulevard
Jersey City, New Jersey 07306RE: Applicability of the partial duty exemption under subheading 9802.00.80, HTSUS; Elastic trim; NY 809995; HRL 555128; HRL 554531; HRL 555128; HRL 556627; Samsonite Corp. v. United States, 12 CIT 1146, 702 F. Supp. 908 (1988), aff'd, 889 F.2d 1074 (1989); U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; T.D. 91-88
Dear Mr. Bernstein:
This is in response to your letter dated May 5, 1995, and your subsequent request for reconsideration of New York Ruling (NY) 809995, dated May 15, 1995, regarding whether certain knitted elastic fabric is entitled to duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, Harmonized Tariff Schedule of the United States (HTSUS) (Note 2(b)) or under subheading 9802.00.80, HTSUS, when incorporated into shoes or cotton girdles.FACTS:
In your letter dated May 5, 1995, on behalf of your client, Just-A-Stretch of R.I., Incorporated, you requested a classification ruling regarding an elastic trim article. The elastic trim will be knitted in the Dominican Republic from American-made polyester yarn and American-made latex rubber thread using a Comez Knitting Machine. For purposes of NY 809995, and this ruling, we assume that the fabric's rubber thread is five percent or more of the total weight. The narrow warp knit fabric measures one inch in width. The knitted fabric will be imported into the United States in bulk (continuous lengths).
In the first scenario, once the polyester yarn and rubber thread are knit into the elastic trim, it will be sent to the United States. In the second scenario, the elastic trim will be sold to shoe manufacturers in the Dominican Republic to be used in the production of shoes. In the third scenario, the elastic trim is sold to cotton girdle manufacturers in the Dominican Republic to be used to produce cotton girdles. You propose to import the finished shoes and cotton girdles into the United States. No samples of the shoes or girdles were submitted with this ruling request.
In NY 809995, Customs concluded that the elastic trim is classified in subheading 6002.30.9000, HTSUS, and that the Dominican-knit fabric will not be eligible for an allowance for the value of the supplied American-made yarn or latex thread under subheading 9802.00.80, HTSUS. Customs determined that the knitting process goes beyond the type of assembly operation allowed under this provision.ISSUE:
Whether the elastic knit fabric that is manufactured or used in the manufacture of other articles in the three scenarios described above is eligible for a partial duty exemption under subheading 9802.00.80, HTSUS, or duty-free treatment under Note 2(b).LAW AND ANALYSIS:
Subheading 9802.00.80, HTSUS, provides for a partial duty exemption for
(a)rticles . . . assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating, and painting
All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the United States components assembled abroad, provided the section 10.24, Customs Regulations (19 CFR 10.24), documentary requirements are satisfied.
Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), states, in part, that
The components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.
Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. However, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS, to that component. See 19 CFR 10.16(c).
Customs has held that the twisting of yarns on a machine to form twines is an acceptable assembly operation because it is a method used to combine or join yarns, which are solid components. See Headquarters Ruling Letter (HRL) 555128, dated January 9, 1989. However, we have also held that passing yarn through braiding machines to produce braided rope and cordage is analogous to weaving fabrics from spun yarn, and is considered a manufacturing rather than an assembly process. See HRL 554531, dated May 29, 1987. See also HRL 555128, supra (braiding 3-ply nylon rope into 8-strand plaited rope does not constitute an acceptable assembly operation); and HRL 556627, dated June 3, 1992 (braiding leather into belts held not to be an acceptable assembly operation).
With respect to the first scenario, the knitting of the latex rubber thread and polyester yarn to form an elastic trim is analogous to the production of braided rope, cordage from yarn, and the braiding of leather into belts. Therefore, the operation performed in the Dominican Republic is considered a manufacturing process and not an assembly operation within the contemplation of subheading 9802.00.80, HTSUS.
You also requested a ruling on whether the elastic trim will be eligible for a partial duty exemption pursuant to subheading 9802.00.80, HTSUS, if it is used to produce shoes or cotton girdles. Since the polyester yarn and latex rubber threads will not be exported in a condition ready for assembly (i.e. they will be knitted in the Dominican Republic), the resulting elastic trim will not be eligible for a partial duty exemption under subheading 9802.00.80, HTSUS. Regardless of whether the elastic trim is used in the production of shoes or cotton girdles does not affect the eligibility for a partial duty exemption for the elastic trim.
Section 222 of the Customs and Trade Act of 1990 (Public Law 101-382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUS, to provide for the duty-free treatment of articles (other than textile and apparel articles, petroleum and petroleum products) which are assembled or processed in a Caribbean Basin Economic Recovery Act (CBERA) beneficiary country (BC) wholly of fabricated components or ingredients (except water) of U.S. origin. This amendment was effective with respect to goods entered on or after October 1, 1990.
Note 2(b) provides as follows:
(b) No article (except a textile article, apparel article, or petroleum, or any product derived from petroleum, provided for in heading 2709 or 2710) may be treated as a foreign article, or as subject to duty, if--
(I) the article is--
(A) assembled or processed in whole of fabricated components that are a product of the United States, or
(B) processed in whole of ingredients (other than water) that are a product of the United States, in a beneficiary country; and
(ii) neither the fabricated components, materials or ingredients, after exportation from the United States, nor the article itself, before importation into the United States, enters the commerce of any foreign country other than a beneficiary country.
As stated in this paragraph, the term "beneficiary country" means a country listed in General Note 3(c)(v)(A).
Although Note 2(b)(I)(A) and (B) are separated by the word "or", it is our opinion that Congress did not intend to preclude free treatment under this provision to an article which is created in a BC both by assembling and processing U.S. fabricated components and by processing U.S. ingredients.
Pursuant to General Note 7(a), HTSUS, the Dominican Republic has been designated as a BC for CBERA purposes. Note 2(b) specifies four categories of products which are excluded from duty-free treatment under this provision: textile articles; apparel articles; petroleum; and certain products derived from petroleum. In this regard, for purposes of Note 2(b), Customs has held that "textile" and "apparel" articles are articles classified in provisions of the HTSUS which include a textile category number, i.e., are subject to textile agreements. See T.D. 91-88, dated October 18, 1991.
According to NY 809995, the subject article, the elastic trim, is classifiable under subheading 6002.30.9000, HTSUS. Since this provision includes a textile category number, this article is considered a textile or apparel article and, therefore, under the first scenario, is ineligible for duty-free entry into the United States for purposes of Note 2(b).
Regarding the second and third scenarios, since the latex rubber thread and polyester yarn are of United States origin, the fact that they are knitted into elastic trim in the Dominican Republic alone will not disqualify the cotton girdles or shoes into which they will be incorporated from duty-free treatment pursuant to Note 2(b). Note 2(b) requires that to be eligible for duty-free treatment, the article to be assembled or processed must consist in whole of fabricated components or ingredients that are a product of the United States. Based on the information you have provided, the elastic trim alone is processed in a BC wholly of components or ingredients of U.S. origin. Since information regarding the other components to be used in the production of the shoes and girdles was not provided, we are unable to issue a binding determination regarding Note 2(b) eligibility for the shoes and girdles. We note that to the extent that the imported article is classified under a provision which includes a textile category number, Customs will consider this article to be a textile article ineligible for Note 2(b) treatment. In addition, if the shoes or girdles are not assembled or processed in whole of United States fabricated components, they will not qualify for Note 2(b) treatment.HOLDING:
Based on the information provided, the knitting of the latex rubber thread and the polyester yarn is not an assembly operation. Consequently, the elastic trim is ineligible to return to the United States classified pursuant to subheading 9802.00.80, HTSUS, whether it returns to the United States alone or as part of a shoe or a cotton girdle. The elastic trim alone may not benefit from Note 2(b) because it is a textile product that is specifically exempted from eligibility.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction
Sincerely,
John Durant
Director